Thursday, December 24, 2009, 3:54AM ET - U.S. Markets open in 5 hours and 36 minutes.

Laura Rowley Money & Happiness

Laura Rowley, Money & Happiness

Four Tips for Riding a Seesaw Market

by Laura Rowley

Email this Page IM this StoryBookmark this StoryAdd to your Del.icio.us accountDigg this StoryPrint this Story
Very Good (193 Ratings)
3.481868/5
Posted on Thursday, August 23, 2007, 12:00AM

My neck hurts. According to the Mayo Clinic's web site, whiplash occurs "when the head is jerked forward and back, stretching the soft tissues of the neck beyond their limits."

Lately, I find that an involuntary neck-snapping occurs every time I walk past a television, computer screen, or radio, and catch the latest stock market update.

This is typically followed by an ill-advised trip to the Internet to survey my investment accounts -- sagging like cheap hosiery bunched at the ankles. Who knew stocks and stockings could have so much in common?

If this market doesn't give you whiplash, stop reading. But if a 300-point drop in the Dow evokes the sensation of digesting bad oysters, here are a few tips to ease your market-induced stress.

Be True to Your Goals

• Investing is about meeting life goals, so make sure your allocation reflects your aspirations.

I hate when people say that investing in the stock market is gambling. Money thrown on a blackjack table in Atlantic City can evaporate instantly (which, regrettably, I learned the hard way). But that's never happened with a reasonably diversified portfolio of stocks and bonds.

On the other hand, a diversified portfolio will swing in value, a natural reflection of the economic cycle. The investor's best defense is to develop a specific allocation strategy that's like Donald Trump's hairstyle -- highly individualistic and oblivious to passing fads.

"It's important to come up with an allocation to meet and achieve goals -- that's the biggest disconnect I see," says Michael Steiner, wealth manager with RegentAtlantic Capital in Chatham, N.J. "Clients will come in with a portfolio, and when I ask what the objective of the portfolio is, 99 percent say, 'To make money.' But what's the money for?"

Be Realistic

• Financial goals need to be concrete, precise and measurable -- with real timeframes and credible numbers.

For instance, Steiner says, "If you want to retire at 62 and live on a $70,000 after-tax [income], then the portfolio should be constructed to meet that goal."

Nobel laureate Harry Markowitz demonstrated that the bulk of investment returns come from allocation -- the mix of investments -- rather than the choices made in each category. It's kind of like nutrition: You'll get fat if you eat more ice cream than vegetables. It doesn't matter whether it's Ben & Jerry's Chunky Monkey or Edy's Cookie Dough.

"That's the most basic investment decision most people will make -- how much you have in cash, bonds, and stocks," says Charles Farrell, of Northstar Investment Advisors in Denver. "Then, within the bond and stock categories, check to ensure that you're adequately diversified. People debate the appropriate amounts, and there's no correct answer, but what generally makes sense is to have a broadly diversified and balanced account." (Novice investors, see my blog for allocation how-to's.)

By contrast, if you're in the market with vague hopes of getting rich, you'll likely abandon ship when stocks decline -- which everyone knows is the ideal time to get in. "It's been proven time and time again: When there's doom and gloom, it's usually the best time to buy," says Steiner. "Emotionally, it's the hardest decision to make, even though fundamentally it makes sense."

Be Patient

• Stocks are an excellent investment -- over time.

If you're unnerved by the latest market rout, it may be time to reconsider your risk tolerance. But first look at the timeframe of your investments.

"The more time you have -- for instance, until retirement -- the more you can tolerate the natural gyrations of the markets," says Michael Furois, president of The Planning Associates in Phoenix. Ariz. "When looking at your 401(k) or other investment account statements, you may have to remember this: The reduced value of your investments is only a temporary decline in price, not a permanent loss in value."

In its best year, the S&P 500 rose nearly 54 percent; in its worst year, it dropped about 43 percent, according to Ibbotson Research. Nobody knows what's going to happen in the future, but studies based on the past performance of the S&P 500 have found that since 1925, the chance of losing money over a year is 28 percent; over 5 years, 10 percent; over 10 years, 3 percent; and over 20 years, 0 percent.

"One good way to test your comfort level is to take a hypothetical market decline and apply it to the amount you have invested in the market," Farrell suggests. "For instance, if the market declines 20 percent, that will affect each one of us differently. If this is my first year as an investor and I have $5,000 in the market, my account might decline $1,000. Probably not a life-changing event. If I have $500,000 in the market and am age 50, I might see a decline of $100,000. Each investor has to honestly answer whether they're comfortable with that type of volatility."

From 2000 to 2002, investors experienced declines of 50 percent. Farrell points out: "Apply that number to the amount you have in equities and see how you feel. If you can stay committed during that type of cycle, and focus on the probability of long-term positive returns, then you're probably in the right place," he says. "If the potential decline in your account value concerns you, then you may be taking too much risk and it's probably time to consider some modifications."

In the meantime, also consider that from its low point in 2002, the Dow has risen about 6,000 points, or roughly 80 percent.

Be Introspective

• Market volatility can be a reminder to reassess risk and rebalance.

If the market roller coaster is keeping you up at night, don't get down on yourself. You probably couldn't have predicted you would feel this way.

People make predictive errors for a variety of reasons, but one that's perhaps most germane here is something called "the hot/cold empathy gap." When people are in a "cold" or neutral emotional state, they often have trouble imagining how they would feel or what they would do if they were in a "hot" state -- angry, hungry, in pain, or, say, watching their E*Trade account plummet in value.

On the other hand, when we're experiencing a hot state, we have difficulty imagining that we'll cool off at some point (which is why, in the heat of the moment, it seems perfectly reasonable to sell all the stocks in your E*Trade portfolio and put the money under your mattress).

Meanwhile, studies on loss aversion have found investors tend to feel the pain of losses more than the joy of gains. "Investors generally make mistakes when they're reacting out of either fear or greed," says Farrell. "Having a balanced and diversified account generally helps combat the tendency to be driven by those two very powerful emotions."

Once you design an allocation strategy, rebalance it at least once a year to reflect the original mix. "Maybe you let those winners ride a little too long and weren't diligent about maintaining your allocation," says Steiner. "Maybe your 60-40 stock-to-bond ratios went to 50-50, and you felt too overconfident."

Get Help

If you're not sure how much risk to take, or whether your investments accurately reflect your life goals or appropriate timeframes, get some help. Many 401(k) providers have investment professionals available to talk to participants about their allocations. Or consider talking with a fee-only financial planner.

You can find one online at the web site of the National Association of Personal Financial Advisors, or the Garrett Planning Network, a group of advisors who charge by the hour.

Email this Page IM this StoryBookmark this StoryAdd to your Del.icio.us accountDigg this StoryPrint this Story

Rate This story

Very Good (193 Ratings)
3.5/5
Sign-in to rate!

40 Comments

Showing comments 6-35 of 40<< PreviousNext >>
Sort: first to last

  • sandra - Saturday, August 25, 2007, 12:44AM ET  Report Abuse

    • Overall: 5/5

    I have been making these same points and comments for years, and have been ridiculed. I am so happy she put it in print.

  • RJF - Saturday, August 25, 2007, 12:02AM ET  Report Abuse

    • Overall: 4/5

    I have some money invested and 3 of my stocks are down considerably. What I realize is that you do have to take time and pick good investments over time. When you rush and pick stocks that may be more affordable you end up regretting it because those stocks usually don't end up keeping up with the gains and losses of the market as a whole. So if I had to give advice I would say that maybe you should take the time and pay a little more for stock in a reasonably sound company that you know will be around for years to come because the price will eventually go back up in most of those cases. But in the end you live and learn. For more info a site that I frequent is my411financial.com and I have been very happy with the information that they provide.

  • naturlm - Friday, August 24, 2007, 11:37PM ET  Report Abuse

    • Overall: 4/5

    Good advice for most of us. Been at this for about 35 yrs now. For approx first 20 yrs I used Laura's method and was patient and slowly and gradually built up significant savings while sleeping well. Then I tried doing some timing and sector allocation strategys. Some years timing worked very well, some years it did not. I have found for myself, I love following the financial markets daily and hourly, but I am too emotional about money and my savings to be consistently good at market timing. I suspect most of us are in this position. When timing worked, it was due in part to luck, but it did leave me with a terrific high feeling, one I never acheived with the slow patient turtle approach. Llikewise, when the timing did not work, significant losses occured, and I was very very depressed. various kinds of timing, may work for those market specialists and experts who work in the financial industry and closely follow the market every hour of every day and through out the day, and especially for those in the financial industry who can make quick unemotional buy and sell decisions while having little or no emotional baggage effecting that decision making. I believe very few of us in the general population can consistently do this or develop or learn how to do this sucessfully. We are too emotional, and most of the time take action without understanding the complex market issues involved. Without the necessary training or practice and trading skills, or without having the necessary inherent personality traits, the general advice given to the public to diversify and sit out the downturns without selling, seems very wise to me. This is just the opinion of a non market specialist who has tryed a bit of both approaches.

  • DFW_AREA - Friday, August 24, 2007, 10:27PM ET  Report Abuse

    • Overall: 1/5

    This is very generic. Could be more insightful, and with some better examples !

  • June - Friday, August 24, 2007, 9:45PM ET  Report Abuse

    • Overall: 1/5

    Have read this advice many times in almost identical language. Nothing new...maybe there is nothing new, but why say the same thing over & over unless you can put some new spin to it.

  • RR - Friday, August 24, 2007, 7:43PM ET  Report Abuse

    • Overall: 1/5

    What a load of nothing. Could she say anything more boring and noncommital? The first few paragraphs have nothing to do with finance...AT ALL. She is just another cheerleader who won't commit to buy or sell. Great advice. This could have been written by June Cleaver and talked about baking cookies and it would have had more relevance to the markets. Did she even mention the credit/housing/wealth factor/avoiding financials/Buffet isn't buying/high energy costs/stagnant wages/bubbles or anything that should be considered. Off with her head too along with Ben, Penelope, Suze and the rest.

  • Yahoo! Finance User - Friday, August 24, 2007, 5:39PM ET  Report Abuse

    • Overall: 4/5

    Pretty good. I've used the described investment philosophy for many years and for me it works very profitably indeed. The little detail about SP500 history was interesting. I would suggest that an investor is one who invests for the long term (years). Those who bounce in and out of the market daily or weekly and for whom a month is a financial eternity, are day traders or market timers. To me, they are gambling and I suspect their results are not unlike the results they might get from slot machines or the blackjack table. Bogle had something to say about these guys. Generally mutual funds don't like day traders and market timers and penalize those who treat their fund holdings in such a manner. The negative commentors who continually criticize all authors in this financial column should ask themselves one question. If you're so incredibly clairvoyant and intelligent on financial matters, why are you reading this column ? Go read financial material elsewhere, where your "incredibly high" level of intelligence can be shared with others of equal intelligence.

  • Andy - Friday, August 24, 2007, 5:29PM ET  Report Abuse

    • Overall: 5/5

    Solid advice as always from Ms. Rowley. Invest in a diversified portfolio through good times and bad, and don't sell on short-term bad news-- doing so will enable you to wallop the returns of most day-traders.

  • Yahoo! Finance User - Friday, August 24, 2007, 5:26PM ET  Report Abuse

    • Overall: 2/5

    Same old dribble. Any novice investors should be looking elsewhere for investment information. "Free advice is worth exactly what you paid for it."

  • Yahoo! Finance User - Friday, August 24, 2007, 5:19PM ET  Report Abuse

    • Overall: 3/5

    Pretty basic advice but always good to hear.

  • Mister Moose - Friday, August 24, 2007, 4:10PM ET  Report Abuse

    • Overall: 5/5

    Excellent. I think that one bullet statement says it all: Financial goals need to be concrete, precise and measurable -- with real timeframes and credible numbers. I've spent the last thirty-five years living by that credo, and it works.

  • Yahoo! Finance User - Friday, August 24, 2007, 4:04PM ET  Report Abuse

    • Overall: 4/5

    Question: I started with $5000 in my 401k 3 years ago and now I have $8000 and I only can afford to contribute $25 a month. I am worried about the stock market, what should I do? Answer: Start to sell shares in the investment you are currently in and transfer the money into a cash account. Do this gradually every month for the next 6 months until have at least 50% in cash.

  • Daniel M - Friday, August 24, 2007, 4:03PM ET  Report Abuse

    • Overall: 1/5

    Is it just me, or do these financial planners all sound the same. Here's a simple solution: Live below your means, put all your retirement money in TIPS and all your non-retirement money in the SPY ETF. Do that, and you'll never have to read this column ever again.

  • jimmy b - Friday, August 24, 2007, 3:49PM ET  Report Abuse

    • Overall: 1/5

    I really can't believe the drivel yahoo are now peddling. I am still laughing at the number of financial advisors "reading the article to better understand what their clients are reading". Talk about laughing your *** off. I can write adoring crap like Laura, Yahoo can I have a column?

  • Grant - Friday, August 24, 2007, 1:50PM ET  Report Abuse

    • Overall: 5/5

    You must have the courage of your convections and keep on keeping on, month after month. It took me 40 years but I have comfortable retirement. I invested a set amount each month in conservative mutal funds.-- Plodder

  • AlienAutopsy - Friday, August 24, 2007, 1:00PM ET  Report Abuse

    • Overall: 3/5

    The web site matrixeconomy dot com posted by user OVERALL is an infected site that attempts to load a virus on your system. Do not go there. OVERALL is a complete wanker. FYI I did not get infected as I have excellent virus protection that is updated daily so screw you OVERALL, it did not work.

  • Stickystock - Friday, August 24, 2007, 12:30PM ET  Report Abuse

    • Overall: 4/5

    As a financial advisor myself, I feel her article is informative and easily digested by people whom are not in teh profession. She doesn't need to be certified and commended in the industry to be able to pass wholesome advice that help people new to the game. There are thousands that read this article and about 30-40% (I think is a fair number) is new to investing. Her advice is good for people who need to understand the basic principles of investing. For those who are in the business and posting that she is arcane and this isn't "news", if you are looking for news on Yahoo, you are not very proficient at picking reliable sources. I suggest finding another profession or actually spend money on real time new services. Don't play the game at half speed. You wind up hurting clients. As for people who say this is stupid and blah blah pooh pooh.. if you are looking to be intellectual masterminds, then go to investment specific sites. Yahoo! is a portal that covers different things in a very broad stroke. They never professed to be the Financial Site of all sites in the world. Why am I arguing with idiots on the internet? The reason why I read this site is because I want to know what MY clients are reading. I have a better understanding of some of the sources of information. That is the only reason why I read this site.

  • D - Friday, August 24, 2007, 12:28PM ET  Report Abuse

    • Overall: 1/5

    If you keep listening to this garbage you're gonna regret it. The dollar's going to tank, and the writing is all over the wall in glowing bold print. If you want real perspective on the dire circumstances facing our economy take a look at matrixeconomy dot com, and listen to the archives. The perspective provided there is without corporate payroll bias unlike this trash.

  • Jeff - Friday, August 24, 2007, 12:19PM ET  Report Abuse

    • Overall: 1/5

    what an idiot, get her off of yahoo.

  • Yahoo! Finance User - Friday, August 24, 2007, 11:08AM ET  Report Abuse

    • Overall: 1/5

    The woman is a journalist and professor of religious studies. I see nowhere in her bio any commendation that would lead to labeling her a financial expert. There are enough know-nothings out there claiming to be experts. Yahoo! should be just absolutely embarrassed by their Finance portal experts, given that everything else is so well presented.

  • ryan - Friday, August 24, 2007, 11:01AM ET  Report Abuse

    • Overall: 3/5

    Good article, however pumping the fee-only adviser obviously came from marketing pressure by the Garret Planning Network. Be advised that these advisors do not actually implement any of the recommendations they propose, you'll have to handle it on your own.

  • Rene - Friday, August 24, 2007, 10:48AM ET  Report Abuse

    • Overall: 4/5

    Good solid basic advice well generalized for the wider audience. Wouldn't be needed if people followed it when it was offered the first time. Wouldn't be needed if people followed it when it was offered for the 50th time. Keep offering that advice and it does eventually sink in.

  • Feddere - Friday, August 24, 2007, 10:35AM ET  Report Abuse

    • Overall: 5/5

    Thank you for writing a good article. You are much better than that awful Penelope Trunk who advises readers to consider stocks the same as gambling.

  • 战士 - Friday, August 24, 2007, 10:28AM ET  Report Abuse

    • Overall: 1/5

    This was a very good article, simple, but much better than the last two experts…RK was telling us about his new rental complex while at the same time advising us to gamble on silver. He may have an insight into the commodities market, but it would be irresponsible for us to follow his advice. The sub-prime mess will spill over to the rest of the RE market and eventually lead to a recession. Such a recession could be disastrous for the economy, not to mention what it would do to the bubble in China! The Dollar is in crisis (CD rates will be falling) and it’s probable not a good time to invest in RE, commodities, or stocks. Having said that, I agree with Ms. Rowley…If you have enough time you’ll come out on top…so keep dollar cost averaging. As for yesterday’s expert Penelope Trunk (I just started reading these) “Five ways to avoid being overworked” her advice is completely idiotic!!! You can't just cut corners.... Your work is a reflection of you and your values. Now you've taken a management failure and made it your own. Stupid!!!....(If you work in the medical profession please don't listen to this advice). If your supervisor doesn’t listen to you, be an adult, call a meeting with coworkers and higher management and try to resolve the issue professionally.

  • Yahoo! Finance User - Friday, August 24, 2007, 10:15AM ET  Report Abuse

    • Overall: 4/5

    Yes you don't want sell at the bottom and buy near the top, this is the worst mistake. One exception, if you have a stock (or even a fund) in which you had substantial gain but it is near going below your buy price consider selling. Its no fun to be holding a stock in which you have a losing position that may take months or years to recover if ever, this is even more important for smaller cap or otherwise risky stocks. And remember the most dangerous time for a stock is right after you buy it, before you have built up a gain. If the stock plunges right after you buy, you have an instant loss, no way to protect yourself from this. So its best not to invest a large percent of your worth all at once in case the market (and your stocks) plunges right after.

  • Dr Putts - Friday, August 24, 2007, 10:01AM ET  Report Abuse

    • Overall: 5/5

    Warren Buffet is an exception to this principal as has a significantly above average financial mind & is perhaps the worlds greatest investor. To use him as an example is totally unrealistic & irresponsible to the majority of the investing population. Advisor's who disagrees with this strategy does not know what they are talking about and are wrong. As a previous commentor stated, it is proven. Evern Warren would not dispute this.

  • AndrejB - Friday, August 24, 2007, 9:36AM ET  Report Abuse

    • Overall: 2/5

    If you want average returns do what it says in this article. Diverifying only brings you closer to the average, then you might as well invest in the S&P500 index and do away with your mutual fund fees. Warren Buffet did not get rich by diversifying.

  • ScottS - Friday, August 24, 2007, 9:03AM ET  Report Abuse

    • Overall: 1/5

    I am a "fee-only" investment advisor. My advice would be to stop reading anything written by Laura Rowley. Her opinion is tainted by the fact that she is paid by Yahoo, who has a constituency to satisfy...namely advertisers, which include some of the largest mutual fund/investment companies in the world. The folks at Yahoo definitely do not want to make their customers (advertisers) angry, thus we get plain-wrapper, common sense drivel like this from Laura. There is nothing "new" here. It's all stuff everybody has heard over and over since the dawn of time. What about something different, Yahoo? Something kind out there that we haven't seen or thought of before. What, you're afraid to do that? Might run off some customers in the process, huh?

  • AMS - Friday, August 24, 2007, 8:59AM ET  Report Abuse

    • Overall: 5/5

    Loved the humour and stockings analogy ! Thank you for making us laugh at our own trepidations while also re-enforcing the importance of sticking with a strategy and setting clear goals !

  • Sir Stanks a-lot - Friday, August 24, 2007, 8:49AM ET  Report Abuse

    • Overall: 5/5

    The bottom line is she's right and Markowitz's research has proved it. The only exception is if you are a top eschelon stock/bond picker ( and you most likely are not) and your picks are right about 85% of the time, then you can outperform Markowitz's allocation theory. Even if your good at it, say your right 70% of the time, you will still be outperformed by an efficient asset allocation. My point is it's very hard to do & It's these facts are proven. look it up.

Showing comments 6-35 of 40<< PreviousNext >>
The columns, articles, message board posts and any other features provided on Yahoo! Finance are provided for personal finance and investment information and are not to be construed as investment advice. Under no circumstances does the information in this content represent a recommendation to buy, sell or hold any security. The views and opinions expressed in an article or column are the author's own and not necessarily those of Yahoo! and there is no implied endorsement by Yahoo! of any advice or trading strategy.

More From Laura Rowley

Money & Happiness

Discover the secrets to financial happiness. Laura's book offers practical tools and positive strategies to create "the good life" in a meaningful way.

More about Money & Happiness

Learn to identify your values, banish debt, start saving, and investing; plus Laura's favorite online resources.

Order your copy of Money & Happiness today and boost your financial well-being!

More from Yahoo! Sources

  • CNN Money
  • Consumer Reports
  • Kiplinger
  • The Motley Fool
  • Business Week
  • Wall Street Journal

Historical chart data and daily updates provided by Commodity Systems, Inc. (CSI). International historical chart data and daily updates provided by Morningstar, Inc. Fundamental company data provided by Capital IQ. Quotes and other information supplied by independent providers identified on the Yahoo! Finance partner page. Quotes are updated automatically, but will be turned off after 25 minutes of inactivity. Quotes are delayed at least 15 minutes. Real-Time continuous streaming quotes are available through our premium service. You may turn streaming quotes on or off. All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.

Yahoo! Answers is provided for informational purposes only, and no Q&A is intended for trading or investing purposes. Yahoo! shall not be responsible or liable for the accuracy, usefulness or availability of any Q&A information, and shall not be responsible or liable for any trading or investment decisions based on such information. View Complete Answers Disclaimer.